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Wednesday, February 25, 2015

A Lesson In The Value of Covered Call Options Final

READ PART ONE
READ PART TWO


One thing about the stock market is that it's okay to change your mind. And that's what I decided to do with Cypress Semiconductor in this month's options play.

Yesterday I sold 13 covered call options contracts with a March 20th expiration and a strike price of $15. The deal for me was a couple-fold. One, on Monday the premium for this call was 50 cents at the start of the trading day, or $50 per contract. As the stock pulled back yesterday that premium gave up 10 cents, or $10 per contract.

I got a little twitchy.

The $16 call for March 20th, the one I would have preferred to have sold, was only about 15 cents or $15 per contract.

Boring.

In January I collected $143 in dividends, and when I sold the first set of contracts on January 21st I collected a premium of $564 after expenses. The March 20th calls gave me a premium of $499 after expenses. Total collected is $1,206.

Based on my cost basis of $12.83 per share, with premiums and dividends collected this puts my total profit at $4,027 if the stock reaches $15 or better by March 20th and I am forced to sell my shares. I am still selling my shares at roughly a 24% gain and I am quite happy with that. I'd be happy to keep my shares as well, of course, and get to play it again in April, but I am inclined to believe that I will be forced to sell.

...and there happen to be a couple other companies on my radar I'd like to put the money from Cypress into.

I still believe that Cypress Semiconductor is a $17 stock, however. And I still like the company. Therefore, if my calls are called and I am forced to sell, I can then start to take a look at selling cash-secured put contracts to either simply collect premiums with no intent to buy shares, or to buy shares at a discount to what I think the future value is.

There is still money in Cypress Semiconductor no matter what happens is the point, and from a technical standpoint whether or not I own the shares,  I can still make money on it. So really, it's win win.

And of course the intention is to make money on wherever my proceeds from the sale of Cypress go.

So there you have it. A lesson in the value of selling covered calls on underlying shares you own to boost your overall profits from a stock. The dividends and options in the event that I'd be forced to sell, put my total per share amount collected to $15.92. So even if it only reaches say, $15.75 and I am forced to sell at $15, I am still getting 17 cents more per share than the market price at the time of the sale.


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